Laughing Stocks
What’s going on?
Why did the investors cross the road? Because they might’ve felt like the butt of a bad joke after financial markets had one of their worst periods on record last quarter.
What does this mean?
Investors’ optimistic start to the year seems like a long time ago now. Global stocks fell 20% last quarter, losing around $20 trillion in value in what was their worst run since 2008. US government bonds, on the other hand, had one of their best quarters as investors clamored for their relative safety.
All of that was, of course, largely down to the spreading coronavirus and investors’ growing concerns – chiefly that demand would all but disappear as consumers curbed spending and canceled plans. And just as they were proved right, central banks and governments announced unprecedented support for the economy. Didn’t do much to settle fears of a recession, mind you.
Why should I care?
For markets: The night is darkest before the dawn.
As the world’s largest economy, the US might offer clues into just how bad things might get and when they’ll start to improve globally. Some economists reckon the US economy will shrink by an annualized 34% this quarter, versus an estimated 9% last. But since financial markets are forward-looking, those forecasts were probably already factored into March’s dramatic selloff. So with economists also predicting an uptick in growth in the third quarter, some investors might actually see now as the time to start buying up riskier assets.
For you personally: Don’t tell me to relax.
March’s stock market drop might’ve made even the most laid-back Finimizers question their investment strategies. But the value of markets tends to rise over time, so if this (admittedly unnerving) pause is indeed just that, calmer heads should eventually prevail. You might want to, say, take the opportunity to rebalance your portfolio, but odds are you won’t need to change your long-term plan on the back of short-term movements.
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Originally Posted on April 1, 2020 – Laughing Stocks
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